China blue-chips end at 18-month high, small-caps extend losses

SHANGHAI, July 11 (Reuters) – China stocks diverged on
Tuesday, with the blue-chip index hitting a fresh 18-month high
as investors chased companies with solid fundamentals, while
small-caps extended a fall on expectations more equity issuance
would soften valuations.

The blue-chip CSI300 index rose 0.5 percent to
3,670.81 points, while the Shanghai Composite Index lost
0.3 percent to 3,203.04 points.

An index tracking 50 blue-chips in Shanghai, dubbed
China’s “nifty 50” index, rose 0.8 percent to a 20-month high as
investors continued to chase blue-chips with solid fundamentals.
This follows MSCI’s decision to include China’s 222 big-caps in
its key index.

At the smaller end of town, however, the tech-heavy start-up
board index ChiNext lost 1.1 percent following a 1.8
percent slump on Monday, with 12 small-cap stocks tumbling the
10 percent trading limit. Small-caps have weakened after the
securities regulator approved more initial public offerings over
the weekend.

China’s central bank resumed open market operations to
inject 40 billion yuan ($5.88 billion) into money market on
Tuesday, after abstaining from open market operations during the
previous 12 sessions.

The tight liquidity conditions will last for a relatively
long time, as the central bank’s current moves to maintain
stability in the market were only meant to prevent financial
risks amid Beijing’s concerted campaign to deleverage, Bohai
securities analyst Song Yiwei wrote in a report.

Banking and consumer stocks led the
advance, while material firms took a breather after
recent strong gains amid an industry recovery and a weaker
dollar.

Investors are likely to be wary of stocks trading at high
levels with a rotation into big-caps extending into other
sectors, including cyclical shares, which could mean rising
risks amid tight liquidity in the market, Song wrote.
($1 = 6.8051 Chinese yuan)
(Reporting by Luoyan Liu and John Ruwitch; Editing by Sam
Holmes)


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